Gov. Arnold Schwarzenegger is holding a series of town meetings across the state not only to promote his ideas about budget reform, but to float some trial balloons as well. That is what he did Wednesday in Pleasant Hill, where he once again touted his proposal to limit state spending to an average of the annual rate of revenue growth over previous years.
But Schwarzenegger, despite his reluctance to impose new levies to balance the budget, suggested that the state should consider taxes on services as well as goods. Such an expansion of taxes is all but certain to meet with stiff resistance by Republicans, and perhaps some Democrats, in the Legislature.
Surely, the governor is aware of the opposition from members of his party and the business community. Still, he said he likes to put ideas out to the public to see what the reaction will be.
He said that services have become a major part of the 21st century economy and that perhaps tax policy should reflect the change.
Schwarzenegger told his Pleasant Hill audience, "Besides the budget reform, we also have to look at, and I'm sure you will agree, the tax, the way we are taxing. I mean, we are missing a lot out there. There's whole new economies that are developing, service-oriented economies. Manufacturing is going down."
Now there's another can of worms for Californians and their representatives in Sacramento to digest. He also said legislators should be courageous enough to make changes and stop worrying about their political futures. That's even less likely than the GOP embracing a whole new form of taxation.
The problem with a service tax, aside from convincing two-thirds of the Legislature that the state needs one, is deciding which services to tax. Would medical services, which are a large share of the service industry, be included? What about financial services, another substantial sector?
California has considered taxing some services like auto repairs in the past, but the idea went nowhere and is less likely to gain traction in a weakening economy.
However, the governor is not afraid to toss out any number of ideas to reform the way business is done in Sacramento. "I talk about anything. It makes no difference to me. I just throw it out there," he said.
Perhaps, but when a no-new-tax Republican governor bandies about ideas for new taxes, it means something more than just idle musing. It would not be unrealistic to consider his service tax proposal, along with his possible support of reducing income tax deductions, as the first step toward accepting significant tax increases.
There could be a deal in the making that includes new revenues along with a major long-term reform that includes multiyear budgets, spending growth control and large reserve funds.
Such an agreement may be just a pipe dream, but we thought we'd just throw it out there.